Mexicans Favor Straights

Mexican issuers could be leaning toward corporate issuance rather than structured transactions as improvements in the economic outlook and higher credit ratings lure issuers to the local capital markets.

"Some of Mexico's strongest issuers - such as glass products producer Vitro, cement maker Cemex and media giant Televisa - are returning to the local market because of lack of appetite for their paper in the international markets," said Marco Sotomayor, director of Duff & Phelps Credit Rating Co. in Mexico.

"Now they can obtain better conditions locally using UDI-type instruments [UDIs are artificial units pegged to inflation]. In addition, higher credit ratings are making local pension funds that can't invest in paper that has local ratings below AA- receptive to these deals."

And those issuers who want to continue tapping foreign markets might reconsider their financial strategies. "The fact that Moody's upgraded Mexico to a notch below investment grade, that Mexico has been the least affected by the Brazilian devaluation and that Mexican spreads have been the best performing relative to the rest of Latin America resulted in more unsecured notes coming out of Mexico," explained one New York-based Latin securitization head.

"I think that you will continue to see asset-backed deals from banks and from Pemex [Petroleos Mexicanos] because that's how they have their funding system set up. But for others, there is more than one alternative to look at."

Some sources argued that Pemex, Mexico's biggest issuer, might also consider a corporate issue in the future. The giant oil producer tapped the markets with a $2.55 billion offering last year, which constituted 60.5% of Mexico's share of securitizations for 1999.

Nonetheless, sources agreed that there is still room for both local and international securitizations out of Mexico. "There will still be Mexican asset-backed deals in the international and local market," said one analyst. "But they will be facing stiffer competition."

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